The California Supreme Court ruled today that merchants in California cannot ask credit card customers for their ZIP codes. The request violates state law protecting the privacy of credit card users, according to the court.

From the San Francisco Chronicle:

“The decision came in a lawsuit against Williams-Sonoma Inc., whose clerk asked Jessica Pineda for her ZIP code several years ago. Pineda sued the company in 2008, alleging the retailer violated the credit card law and her privacy.”

So that begs the question…why do stores ask for my ZIP code when you make a purchase?

Reason #1: For Credit Card Security

Credit card companies use the zip code information to confirm your identity. If the ZIP code you give doesn’t match the ZIP code of your billing address, then the transaction is denied. You’ll more often than not see this at many gas stations, self-service checkout machines and self-pay kiosks.

This is what the California Supreme Court ruled on today, saying this practice violates state laws.

Reason #2: For Marketing Purposes

More often than not, stores will ask you for your ZIP code for marketing purposes. Some stores aggregate the information to determine where to open new stores. Sometimes they’ll use your name and ZIP code to lookup other information about you, like for membership cards and such.

Many people feel that asking for this information is intrusive, just like door receipt checkers and checking ID when using a credit card. But the question remains whether stores will continue to collect ZIP code information at all, whether for credit card security or for marketing purposes, if the courts’ ruling stands.

***Updated Feb 15, 2010***
Several people have sued retailers for continuing to ask for ZIP codes after this ruling. Check out the story here.

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